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Ladies and gentlemen, thank you for standing by, and welcome to the New Century Resources December 2019 Quarterly Report. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. Patrick Walta, Managing Director of New Century Resources. Thank you, sir. Please go ahead.
Thanks, Christian, and thanks, everyone, for taking the time to join this conference call. I appreciate everyone's busy, so we'll get through all the detail as quickly as we can. Today, I'm going to be going through the December quarterly report, both activities and cash flow reports, and also will deep-dive into some other -- some details within those and also probably an opportunity to discuss the zinc market as well. And we can provide some commentary and some insight there as well. From an operational perspective for New Century, it was actually our strongest quarter to date. So in summary, production was up to -- we achieved guidance, a record quarterly production. Our recoveries were up. Our mining rate was up. The quality of our product was also up in terms of the grade, improving grade as well. And our costs were down. So we continue to leverage our key competitive advantage, which is our fixed cost base. So we -- as we've talked about in our releases, we have around a 70% fixed cost base for our site costs. So as we increase our metal production, we continually drive down our unit costs, and you'll see that in some of the figures in our presentations as well, seeing that quarterly production continually increase and also our unit costs continuing to decrease, so -- which is pleasing. Been achieving these strong quarterly results, albeit in a declining zinc market environment, so that's well covered. The zinc price is relatively dour at the moment. And also we have treatment charges at above 10-year highs at the moment as well, which is effectively reducing the value of the product that we're producing. So despite an increasing metal product, the value has declined as well, which affects the sort of the economic outcomes. But we will discuss that in detail as well and the focus of the business of how we'll be transitioning into positive cash flow over the coming 2 quarters as well. So just quickly going through the details in terms of production. So we achieved 28,123 tonnes of zinc metal and achieved guidance in doing that -- in doing so which was a 7% increase on the September quarter. And so we also reduced our cost to $0.96 a pound on a C1 basis, which is a 3% drop quarter-on-quarter from the September quarter itself. That C1 cost also includes an increase in TCs over the quarter. So TCs increased around $50 a tonne over the quarter, which effectively translated into a $0.05 a pound increase in our C1 costs as well. So despite that, we were still able to achieve guidance and also reduce our costs overall. You'll see that zinc recoveries have also continued to improve. So inside the quarter, we were bringing on the northern scavenger circuit there. And you'll see in one of the figures that shows the raw data, obviously, the exact figure for you, figure 5 within the quarterly report, we had a period -- around a 6-week period of commissioning of that scavenger circuit, but outside of that and certainly our results into January and to date, have ranged in the 50% to 54% recovery region. So we have some -- still some work to do to get that up to our target, above 60%, and I can provide some detail about how we're going to be achieving that over the course of 2020 as well. From a mining rate perspective, that's also continued to improve. You'll see that, again, in figure 5, a progressive increase from an annualized mining rate of around 8 million tonnes per annum, where we exited the quarter at an annualized mining rate of around 9 million tonnes per annum. That will progressively increase to 12 million tonne per annum over the rest of this financial year, so through to 30 June, with the main focus there being the final upgrade of the components of the plant, which is the rougher circuit as well. So the rougher circuit was due to come on line in late March. That's actually slightly ahead of schedule, and we're looking at more of a late February installment of that. And there'll be a small commissioning period for that, and we start to see the effects of that improved volume and also talk about how that helps -- assists us with recoveries as well. But just bringing on that -- the additional volume and the additional tonnage, ramping up from, say, 9 million tonnes to 12 million tonnes, will help us add around 35% additional metal production to our current run rate as well. So it's relatively significant in terms of that opportunity. And again, 35% additional metal production assists us with reducing our C1 or reducing our unit costs overall simply because we leverage that fixed cost base by...
Ladies and gentlemen, the speaker is currently experiencing some technical difficulties with their line. Please stand by while we address the situation. [Technical Difficulty] Ladies and gentlemen, thank you for your patience. I'd now like to hand the conference back to your speaker. Thank you. Please continue.
Thanks, everyone. Apologies for the line drop-out there. And I'll go back a little bit so hopefully, we cover everything off from what we're doing. So the focus over the remainder of FY '20 is around completing the 12 million tonne per annum ramp-up. So we're bringing on this final rougher circuit as part of that. That's due to come on line or is scheduled to come on line late March. That's looking more like late February for that to be on line. We'll have a short commissioning period for that, and then we can really take advantage of those additional metal tonnes. So looking at upwards of a 35% increase in metal tonnes associated with just bringing that on line, also some recovery benefits from that as well, which I'll go into detail on. That additional metal tonnes will also help us reduce our unit costs as well. Also you'll see we've got March 2020 quarter guidance, which has been released and maintained within this quarterly report, 29,000 to 35,000 tonnes zinc metal and C1 cash costs of $0.85 to $0.95 a pound as well. Now within those C1 cash costs, we're utilizing or assuming the same TCs as per last quarter, so record high TCs. That is literally $0.35 a pound of our total C1 cash cost at the moment, which is roughly $0.20 a pound above the 10-year average TC. So opportunity for improvement in our overall cash cost base. We think we'll see some improvement in the macro from that perspective as well. And we -- I'll go into some detail about those TCs in there, where we see them coming in, in the near future as well. Also some notes just in the quarterly report around some recent rainfall and also the coronavirus outbreak as well. There has been some heavy rainfall recently in January in Queensland. There's been some media reports about damage to rail and road infrastructure, similar to last year. Century operations have their own dedicated logistics infrastructure, so we have our own underground slurry pipeline. We have our own port facility as well. They continue unabated. We have not received any negative effects from those as well. And outside of some relatively minor interruptions in terms of rainfall on the site itself, our operations have been able to continue, which is great as well. Also with relation to the coronavirus outbreak as well, we have had 0 interruption in terms of sales into China. Our sales continue. We've sold 100% of our product to date. We continue to sell to 3 different continents. We've now completed 25 shipments to 10 different smelters on 3 different continents and specifically into China as well. And all of our sales are booked out more than a quarter in advance at the moment as well. So as it stands right now, we've not suffered any effects of the coronavirus outbreak. But we're obviously monitoring it like the rest of the world as well. Overall, in terms of our economic performance, you'll see here -- there that even though our zinc production was up, our receipts from customers was down. So receipts from customers is a function of your -- the gross value of the zinc that you produce. We typically get paid about 90% of that as the ship leaves or inside our shed in Karumba, and then there's a deduction made for treatment charges, impurity penalties and standard payability factored in this. So it's not a gross revenue. It's a net receipt from customers there.And that's been affected by a number of things this quarter, which one is the rising TC, so rising from that sort of circa $265 that we've been seeing in previous quarters all the way to north -- $315, north of $300 a tonne, which has been well flagged by commodity analysts and around the world over the course of this quarter. And also we had a negative adjustment on QP. So if you go back the way that zinc pricing and zinc metals work is, when you sell the products, so for example, in the June quarter of last year, the average zinc price was around $1.25 a pound, so you could sell 90% of your products at that stage. And then you -- the final price and the ship is adjusted to a final price, anywhere between 1 to 5 months after it arrives at its final destination. So one of our shipments might leave, it will take approximately 20 days to get to China. It can take anywhere up to 2 months to get to Europe, depending on which way it goes. And then within an individual contract, that -- the final price will be settled 1 to 5 months after the month of arrival at its destination. So while we had sales occurring in the June quarter at the sort of zinc price of $1.25, that -- a lot of those or all of them got effectively got adjusted to much lower zinc prices. So we saw a very swift decline in the zinc price over the second half of last year. And effectively, those prices got rebased to around $1.04, $1.05 for the December quarter there. So we did suffer quite a severe negative QP. I will note, though, however, our pricing has effectively been rebased. So over the last few quarters, it's -- zinc price has been a lot lower. And so our pricing has been rebased. For example, the provisional pricing for shipments in the December quarter is $1.06, which is far closer to the current zinc price, noting that it's quite volatile. One of the natural questions around QP is the ability to hedge it, so hedging it as the ship leaves as opposed to waiting for that settlement price in the future and then running the risk of lower zinc prices, which we've seen. Conversely, if the zinc prices were higher, we would have received a significantly larger amount of revenue from it. So it's -- it does swing both ways. However, just in regards to the potential to QP hedge over the last 6 months, one thing that has also compounded the issue is backwardation. So backwardation is a concept where the current zinc price versus the forward projection of the zinc price is different. And backwardation means that in the future, say, 3 months or 6 months out, the zinc price is predicted to be lower. So we saw, particularly in the middle of last year, some fairly extreme backwardation to the tune of sort of record levels, around $160 a tonne, which really inhibited the ability to do any hedging. It's effectively locking in a very low price because if you want to hedge, you have to go out to those sort of 3-month or 6-month rates. So it made it quite difficult to do that hedging. The company is, though, actively looking to QP hedge and, more broadly, look at zinc price and exchange rate hedging, where possible, to mitigate risks in this current volatile market. So if we do see -- going forward for QP, specifically, if we do see sort of a flat 3-month zinc price or even what's known as contango, where the zinc price just needs to be higher than what it is right now, we will naturally look to lock that in and mitigate that risk going forward. So those are some plans there. Treatment charges, as I said, were also quite higher. They increased over the course of this quarter to above 10-year highs. While that is frustrating, obviously, we're not orphans in that -- in this scenario. That's a global phenomenon for all zinc miners. We do see, in the medium term, some fundamentals coming into play, which should allow those treatment charges to come off. And that's principally around Chinese smelter production. So you'll see in some graphs on figure 4 within the quarterly activity statement there, China's zinc production is -- zinc smelter output is key to treatment charges. And if we go back to 2018, the whole reason why zinc prices -- sorry, treatment charges went from $50 a tonne when we started operations to over $300 a tonne now is around those smelters, the utilization of those smelters in China. So China produces around half the world's zinc metal, so 13 million tonne per annum industry. Around 6.5 million tonnes of that is produced in China alone. And a couple of years ago, new Chinese environmental regulations kicked in across the board in terms of commodities and base metal complex, which forced the shutdown of many smelters. So it was either shut down for refurbishment or shut down for replacement of those smelters or rebuild as well. So we saw a big drop-off between 2017 and 2018, a big drop-off in that smelter output that occurred there. That is now starting to turn back on. So particularly in the second half of last year, we saw a big increase in the monthly output of Chinese zinc smelter production, which is projected to continue to occur in 2020 as well. So naturally, the whole reason why the smelters turning off resulted in a buildup of concentrate stocks globally, and that caused TCs to increase on simple supply-and-demand fundamentals. We're now seeing utilization of those concentrate stocks. And so over time, we should see those treatment charges come down. Now it's impossible for us to crystal-ball about when that will occur. However, on basic supply-demand fundamentals, the same reason it went -- they've gone up, should be the same reason that it'll go down. And you can see that occurring through our history, if you look at the figure on -- sorry, you look at the graph on figure 3 and Page 7 of the quarterly activities. The TCs have typically come down as quickly as they've gone up throughout history. But we wait to see -- hope to see the positive effects of that over the course of 2020. As I've said, it's literally adding $0.20 a pound to our cost base at the moment. So it's a good opportunity for upside in reducing costs and increasing margin for us over time. In terms of the capital and operating costs for the expansion. Operating costs are slightly lower than what we had originally forecast, only marginally, which demonstrated that the team on site has got good cost control. So we recognize that the market is tough at the moment, and we are putting out as much as we can due to the good cost control on the site and trying to utilize as much as we can there as efficient as possible, so operating costs were just slightly down. Also our capital spend was slightly down as well. What's pleasing is we're really at the end of the final quarter of our capital spend. So we're literally running out of things to refurbish. So once the March quarter is done, we're projected to spend $14 million in the March quarter, that's it. We don't have any really material capital outflows for the expansion going on after that. So considering we've been spending around $15 million a quarter for several quarters now to complete this expansion process, it's pleasing that come the end of this March quarter, we'll see an elimination of those capital outflows, which obviously assists with us starting to generate positive cash flow and growing that value of the business. And that is really the key focus for the company now. It's the transition into positive cash flow that I know that all of our shareholders are looking for, and we are obviously focused on that as well. So despite dour market conditions, we're still seeing that benefit occur. And particularly going into the June quarter, we see that as being a strong quarter for our business in that we'll have a complete elimination of these expansion capital outflows there. We also receive the benefits of the additional metal production from bringing on this final part of the circuit, transitioning to 12 million tonnes per annum, also generating recovery improvements as well. So increasing our metal output from 28,000 tonnes, getting that into the high 30s and beyond, which will -- that increased metal production will drop our unit costs as well. So we have more tonnes or more pounds getting produced at a higher margin, a larger margin as well, and we also have an elimination of our expansion capital spend. So there, we see a very much a sort of confluence of events occurring going into that June quarter as well. And look, hopefully, we see some improving macro conditions around the zinc market in terms of zinc price and TCs over that 6-month period as well. But we -- not much we can do about those, but we know we can continue to lower our costs and improve our margin even in a dour zinc price environment as well. From a cash position as well, you'll note that our recent completion of the expansion of the debt facility with Varde. It's been a good result. We had a $60 million secured facility with Varde on some pretty reasonable terms. Associated with that previously was a $40 million unsecured facility, which was on some -- much higher terms and less favorable terms to New Century. And so we've been working both with Varde and MMG around the ability to instead of have a $40 million unsecured facility, was increase the level of senior security that we could have, and we were able to achieve that, which has been a great result. We thank our friends at Varde and MMG for allowing those negotiations to bear fruit and get the result that we did. And the result is that we've expanded to a $100 million senior security facility on much better terms than what were previously proposed there. So that's put us in a good position. We also note that we sold the cattle station, our minority interest in the cattle station as well, for $9.8 million. That transaction is done. That cash is in the bank. It was a clean sale of share sale, which was executed as per how we announced that as well. So giving us a decent cash position to enable us to spend this final $14 million on the expansion and take advantage of that by increasing metal output, improving our margin and reducing our costs, improving our margin and starting to really generate that strong positive cash flow and I guess give investors in the market the confidence they need to show that the viability of the business and also the profitability of the business. And we're really seeing that now start to come to bear in the short term, where we're sort of entering the harvest phase of this asset investment now, which will be pleasing to see occur over the next period of time. Just quickly diving into some detail around our mining rate ramp-up and also our recoveries. As I said, we're running at effectively around 9 million tonnes per annum at the moment. The team is progressively increasing that mining rate over time. And once we bring on these additional roughers, we'll effectively have capacity to go to 12 million tonne per annum. What's pleasing is, if you think -- if you look at our actual cannons, our hydro mining cannons, we have 3 cannons on line right now, and we will bring a fourth one on shortly over the course of this quarter to give us that 12 million-tonne capacity. Inside the 3 mining cannons, though, there's been significant improvements in their reliability, the density that they're able to achieve, and that effectively means the mining rate that we're able to achieve. So 6 months ago, if you'd asked me what -- how many tonnes could each hydro mine oversee -- achieve, I would have said, oh well, 3 cannons, we're hopeful it can get us 9 million tonne per annum. We're actually comfortably achieving 9 -- or just a tick over 9 million tonnes per annum, running 2 cannons, with the third cannon effectively being throttled on and off. So I'd say we're running probably 2.2 cannons at the moment. So we're very pleased that we know that 3 cannons can probably do 10.5 million tonnes quite comfortably. And we'll bring on the fourth cannon and we'll have more than excess capacity to do that 12 million tonnes per annum. And then as the capacity comes in the plant with the new rougher circuit, we'll be able to ramp up in a coordinated fashion to that 12 million-tonne per annum output, which ultimately increases our metal production by around 35%. There's also some important sort of metallurgical benefits from bringing on the additional rougher circuit. So if you think about it right now, we are running 1 rougher train. We have a 2-train system where we have rougher scavengers, 2 individual trains. But ultimately, we only have 1 on line right now. But we are running that 1 train at 9 million tonnes per annum. So we are really pushing the boundaries about how much this plant can physically put through 1 train. So 1 train running at 9 million is an effective run rate of 18 million tonnes per annum. No, we don't plan to run at 18 million tonnes per annum when we're fully ramped up, but we're running at quite a high-velocity through the circuit, through that part of the circuit right now. So as we expand from 1 train of 9 million to 2 trains of 6 million, we actually slow the velocity of the slurry down through our circuit, which is important for 2 reasons: a, it gives us a better mechanical performance through the plant as well; but as we slow it down, it increases our ability to recover microfine particles. So if you think about it, the tailings end, there's a lot of fine particles in this ore body as well. And when you're pushing them through at a 50% higher velocity than what you intend to do in the long run, you're limiting the ability to recover those fine particles, give that a chance for the flotation reaction to physically occur. So as we go from 1 train of 9 million to 2 trains of 6 million, we'll slow it down. We'll get that recovery enhancement or the ability for that recovery enhancement. The second benefit there is the quality of the particles. So the whole idea of mining and certainly, in flotation, is you grind your ore body down to a level where you sufficiently liberate the gangue material from the target minerals. And in our case, it's sphalerite, which hosts the zinc. So with fine particles, they're also your most pure forms of sphalerite. So they don't have any silica or other gangue materials on them. And so they're the best quality particles. So as we go to 2 trains, we'll increase our recovery. But we'll also be increasing our recovery of those high-quality particles. So we improve the quality of the product that we're actually putting into -- conventionally into the cleaning circuit, which enables us -- so the cleaning circuit effectively has to do less work and enables us to pull that harder as well. So we sort of get multiple recovery uplift opportunities by this expansion process as well. So we're looking forward to seeing the benefits of that. As I said, we see an up to 35% improvement in metal output from just going from 9 million to 12 million tonnes per annum. But there's also the potential to improve our recoveries, and we see up to a 19% improvement in zinc output from getting those recoveries up from the sort of 50% to 54% range that they're currently in, getting them up above 60% as well, so that'll be one of the targets for us also as we progress forward. So just I guess summarizing how we see this quarter going forward before I talk about the zinc market as well. We see very much this -- the first half of 2020 being this transition into positive cash flow for us. So yes, we've -- there's a light at the end of the tunnel in terms of one final capital spend for us. We have a decent amount of funding to be able to achieve that now with the debt facility and the capital -- the cattle station sale as well. That will allow us to increase our metal output, reduce our unit costs as well, so it gives us more tonnes or more pounds to sell on a larger margin as well. And with the capital spend drop-off as well, that also allows us to really start generating some significant positive cash flow. In conjunction with that, we do intend to declare commercial production mid this year, in line with the completion of that 12 million-tonne ramp-up as well. You would also notice that we recently released an investor presentation in mid-January, which had an update on the zinc market and an overview of that, which we think is quite important and certainly, well worth reading. Where -- while the market is dour at the moment in terms of the zinc price, which is at sort of 3.5- to 4-year lows and treatment charges above 10-year highs, which ultimately result in the return of the share of revenue to the miner being at levels not seen since the global financial crisis, we do see some positive fundamentals occurring in the market. We still have zinc metal stockpiles at historical lows. So I think overnight, they just reached 50,000 tonnes in terms of metal on the LME. And with increasing Chinese smelter utilization, we should see those treatment charges drop. We should see concentrate stockpiles reduce globally, and we should see those treatment charges drop. Interestingly, in the market, even though we've seen a significant increase in China in zinc smelter output, we're still not seeing that translate into stockpiles globally. So China has been improving on its auto sales. You would have seen some -- there's research analysis to show that auto sales in China are improving. And in particular, galvanized steel production in China is also improving. So there's been a big turnaround in 2 key utilization metrics over the last 6 months as well. So we are seeing consumption of the increased output, which does bode well for improving fundamental analysis. So the main reason we see as to why the zinc price is low, is it's sentiment-driven, so trade war fear, certainly coronavirus fears as well. The zinc price 1.5 weeks ago was about $0.12 higher than where it currently is. So it's quite volatile and really being led by sentiment around these sort of macro events, but the underlying fundamentals of zinc are very strong. A lot has also been made of potential future mine supply as well. So for example, last year, it was predicted that mine supply would increase by 9%. You're talking about an extra 1 million tonnes of zinc metal in the market. It turned out to only increase by 1.5%. So it's a fairly glaring miss in terms of forecast versus actual. And also this year, a similar thing, zinc mine supply is projected to increase by 6% to 8%. A lot of that or the major -- or half -- over half of that is predicated by Chinese mine supply, so Chinese mine supply has to increase its metal output in order to achieve those growth rates. However, you're seeing some of the analysis that's being performed, is that a big chunk of Chinese mine supply dominates the right-hand side of the cost curve. So China has always been known as a swing supplier in the market. And as a result, if prices are good, they turn on the smaller operators [ soon ]. Conversely, if prices are bad, they will turn off. So there really isn't a lot of logical sense as to why Chinese miners will increase mine supply in a dour zinc price environment. We'll wait to see that play out over the course of this year. If it doesn't play out and we don't get that mine supply increase, the zinc market is very tight. There's no metal supply. There's no new mines coming on line, and there's simply no incentive for miners right now. Board -- companies don't allocate capital to operations that are not profit-making. You're allocating capital to the most profit-making parts of your enterprise there. So there's going to be limited conversion of resources to reserves. There's limited capital available for expansions to occur, and all of that should result in decreasing mine supply or, certainly, a lack of growth in that mine supply in there. So we should see limited growth in mine supply, a drawdown of global concentrate stocks, which will assist with TCs. And at the moment, we're not seeing an increase in metal supply in terms of those LME stockpiles because we're seeing good utilization in the auto sector and also good utilization in the galvanized steel sector there. So a good chance for improvement in the zinc price and a decrease in the treatment charges as the market switches from what I classify as sentimental analysis, sentiment analysis, into that fundamental analysis going forward. So we'll wait to see that pan out. In the meantime, the focus for our business is on generating positive cash flow and transitioning to that as quickly as possible. We certainly see that occurring in the near term as we eliminate our capital spend. And we also have a growing production base, which lowers our unit costs. And we have more tonnes or more pounds to apply to that higher margin going forward. So that concludes my portion of the quarterly reports, discussion of the quarterly reports. However, I'd like to open it up now to questions. So Christian, thanks very much, and we can open up to the question base about now.
[Operator Instructions] Your first question today comes from the line of Michael Slifirski from Crédit Suisse.
A couple of quick ones for me, if I may, please. First of all, great to see that the capital spend is basically done, and that cash flow is going to improve so strongly. The capital holiday ahead of you, how long have you got that before -- how long have you got that for before you have to start considering investing in the in situ resources?
Yes, good question, Mike. Thanks for that. So yes, I rather like the term "capital holiday," that's a good way to put it. For us, we do have a decent mine life here. We've got sort of 6 years of reserves ahead of us, just on the tailings alone. We then have around 10 million tonnes at 10% zinc and lead sitting in and defined in situ resources, all of them on the mining waste, all of them with the native title environmental approval there as well. Beyond that, we have quite a lot of opportunities for expansion of that tonnage base there. So we have some decent bulk resources and identified opportunity in the pit itself in terms of a low-grade stockpile, also some exploration opportunity around a millennium target, which looks to be a potential third piece of the original ore body that is yet to be discovered and developed. We will be expanding on that story in due course as well and building out that mine life. We certainly see the opportunity for 10 years-plus of mine life here, just on base metal alone. Going back to your question on -- around capital spend there as well. What we want to do is focus on bedding down the tailings operations, so getting them -- expanding through to 12 million tonnes and getting the recoveries up to our targets as well and also assessing the market conditions. So we're completing the definitive feasibility study around the in situ resources. That's our next target in terms of building out the mine life, completing that definitive feasibility study and having that ready to go so the Board can make that decision to mine as soon as possible. And really, it's around we see improving market conditions that we can tap into, we can bring that production on line very quickly. It's effectively -- in terms of South Block being the main resource, there's effectively a 3- to 4-month pre-strip, where we can just start feeding that in, and we will just fit it into the same plant that they're currently utilizing and away. So we kind of see it as a swing supply opportunity in itself in terms of the -- if those market condition -- or as market conditions improve, we'll be able to quickly bring that material on and take advantage of it for shareholders. Capital spend for that material, there is -- we've outlined that in our recent prefeasibility study in July last year, a pre-feas that was done in terms of the capital spend requirements for various deposits. We will be considering that, but we're also looking at different financing options because the majority of that capital spend is actually pre-strip. However, we may be able to get that pre-strip financed out as well, really reducing that capital spend in there. But for now, the focus is -- 100% of the focus in terms of operations is transitioning into positive cash flow and building that positive cash flow, so actually generating a decent cash buffer in the business, utilizing that before we make any consideration of bringing on in situ resources in there. As soon as those market conditions allow us to, or we can take advantage of market conditions, we will absolutely bring it on as -- and we'll bring it on, we'll be first to market in terms of any new production because it's sitting there ready to go.
That's great. Second one, with respect to the final tie-in of the rougher upgrade. Given your experience and to date, with each bit of incremental kit that you've commissioned, it seems that the disruption each time is less than the prior time. So how do you think about the last upgrade that you have to tie in and commission in terms of disruption to recoveries, restabilization? Will the transition be smoother than what you've seen to date? Is it an easier process now?
Yes, good question. We do have, I guess, a track record now in refurbishment. And this is effectively the fourth process we've gone through of refurbishing the same sort of kit now. We're just refurbishing cells and pumps and integrating them into our existing control systems and that sort of thing as well. So it's pleasing. The team has a lot of experience in doing it. And you're right, that has allowed us to learn a lot from the previous experiences and improve on them. And if you look at overall, the -- for example, the scavenger commissioning crew, that took us about 6 weeks. To be honest, it's probably 2 weeks longer than what we would've wanted it to be, but we have a lot of learnings from that. And the complexity of that is significantly more than just bringing on these additional rougher cells because without getting too technical, we're currently running the scavengers, the 2 scavenger trains, in series rather than in parallel; whereas as we bring on these -- the new roughers, we then run 2 trains in parallel. So it's really about adding volume to, instead of extending a one -- the actual train itself. So it's a little bit simpler to actually bring these on, particularly from a, I guess, metallurgical optimization point of view. So we should see a shorter time frame for doing that, less disruption as well. But certainly, as we get through March, for example, we then have that benefit in that probably for the first time since we started the operations, we won't be disrupting the operations. So key to flow plant is stability, so stability of feed and also just stability of the actual processing plant itself. And we really haven't given it a chance to be stable. We've constantly been increasing tonnage, bringing on new pieces of kit, commissioning those kits, rebalancing the plant over that period of time. So getting through this March quarter, we won't see a lot of stability in the operations because, quite simply, we've run out of things to refurbish. And so we can just run stable operations, optimizing for recovery and getting it up and running at that consistent 12 million-tonne per annum.
Tremendous. Two other quick ones, if I may. You talked about North Queensland rain. I know last year, it was pretty catastrophic, but you escaped totally unscathed. If you get rainfall on site, we'll see what happens, but if you do, what does it do to your mining process? Does that become an impediment with the water cannons in terms of density? Is there any sort of risk around mining? Or are you sort of well prepared for wet seasons?
Yes, absolutely. And the -- as we build -- as we reclaim the tailings, it's still like an open pit. It's analogous to an open pit where if you get a lot of rainfall, you do get water ingress into the channel area there. You'll see -- there's a picture on -- figure 7, kind of gives you a decent overview of the tailings dam itself. So while we have a large surface area for the actual tailings dam itself, any water that doesn't actually physically land on the dam is designed to drain away from the tailings dam. That's been designed that way for 20 years, and all tailings dams are designed like that. Even water that falls onto the tailings dam itself is quickly redirected through to the southern end of the dam and flows into the evaporation dam. Again, as the way tailings dams were designed to be that way. So it's really only the water that falls into the channel itself, which we're reclaiming in there. So we -- in North Queensland, particularly out where Century is, you don't typically get constant rain, but we get big downpours of rain. So we get very quick downpours, and that will cause water to occur in that channel area. And what that does is it reduces the density. Ultimately, it's more water, reduces the density of the slurry that you're sending up to the plant. So if that density gets too low, what we do is we actually just pump that water out. So we have an ex-pitting system. It's pretty sophisticated now. We're actually looking to double that for the next wet season. And so it minimizes that disruption. So even if I look at the -- we have had heavy rainfall, the heavy rainfall across North Queensland over the last 8 days. And that's caused us to go down probably 6x in the last 8 days, but each time only for a few hours. So we had a big downpour. We pumped that material out very quickly, and we're up and running again there. So it's relative to an open pit operation or something like that where you get ingress coming in from all sorts of areas and take a longer time to pump it out. We're a lot more -- a lot quicker and a lot more efficient than that. And the other really important thing is the logistics infrastructure. There's already -- even last week, there was already news reports of rail line washout occurring on that -- now known as the railway line, but the big rains have come this week. There's been a lot more rainfall through that area this week, and there simply hasn't been a chance to even assess it. But given the nature of the damage that occurred last year, it wouldn't be surprising to see that line out for a month-plus again this year, which, again, goes back to the benefits of the infrastructure that we own there. Our underground -- so pipeline continues unabated. Our port facility continues unabated as well. So that's pleasing.
That's great news. And then finally, with respect to TCs, I know you felt all the pain on the way up. So when TCs ultimately do normalize or perhaps even recede to the better side of the -- to the long-term average for you, how quickly do you get that benefit? How fast are you exposed to them rising? And how fast are you exposed to them falling?
Yes. That's a good question with the TCs and also this QP as well. I mean if you think about our current production, so 28,000 tonnes of metal, that's about -- that's part of sort of 50 million pounds of payable metals that we're producing in there. Now 50 million pounds of payable metal, and we're currently seeing a TC that's $0.20 a pound above the 10-year average in place. So you're talking about USD 10 million being available to us -- or AUD 10 million being available to us for each quarter with this differential. So again, we will see TC, given we sort of book out a quarter in advance in terms of our shipments and that sort of thing, you'd expect to see the benefits of a decline in TC in the proceeding quarter that occurs. And the same is for QP. I mean we were very excited to see zinc price at $1.10 and that sort of thing because we were seeing a fantastic positive mark-to-market on our shipments, sort of north of $10 million on the QP. We have a decent amount of zinc on the open market, which is probably the stuff that's more about $1.03 to $1.04. I mean that's evaporated now, but we'll see and maybe we'll see that rise again. So we are still globally the biggest leveraged play to zinc available on the -- on any listing. We produce a significant amount of tonnes, and 97% of our revenue effectively comes from zinc. So even other big producers like Trevali, for example, only about 84% of their revenue comes from zinc. So you're right, it is brutal on the way down and it has been. The last 12 months, we've seen a decline in zinc price and increasing TC, which has been brutal on the way down. But we do get an opposite effect occurring in an -- improving market conditions. So if we could see sentiment improving over the next 6 months, we should -- we will -- I think it will have a compounding benefit to us in terms of very quickly transforming our QP, our open QP, and also taking the benefit of the rise in the zinc price and TCs as well.
Great to see the operational stuff going so well and all the best for the market side.
Yes. We can only do so much there. But the fundamentals are solid, which is good. We just need improving sentiment.
Your next question comes from the line of Matthew Chen from Foster.
Just wanted to dig a little deeper into the costs and get an idea of the scope of your further incremental cost reduction that will come from the commissioning of the second rougher and the volume and recovery benefits of that, excluding -- well, I guess, if you want to sort of talk about it in terms of where the TCs are announced now, so assuming that they're sort of flat now, and the timing of those cost reductions.
Yes. Yes. Good question. Thanks, Matthew. So if you look at -- we'll break it down into sort of a month by month. So if you look at the month of December, we produced a tick over 10,000 tonnes of zinc metal in the month of December, and our C1s are about $0.91 a pound for that -- for the month of December itself. So even with an increase in TC of $0.05, so TCs have stayed at $265. And we would have had a mid-80s C1 that occurs there. As we increase that metal production, so as we go from 10,000 metal tonnes to, say, 13,000 metal tons, and this is -- I'm just talking about ramping up from 9 million tonnes per annum to 12 million tonnes per annum, that significantly reduces that C1 cost base because our absolute costs don't really change. There are some modest increases in costs around hydro mining, some modest increases in costs around reagent costs as well because you're just physically processing more material. But the fixed cost base doesn't change. So we still continue to leverage that. So again, without putting any projections, these are not projections in any way, shape or form, but we should see, if all other things being equal, we'll go from 10,000 metal tonnes to 13,000 metal tonnes and keeping TCs where they are, we could see that easily smashing down through the 80s and into the 70s. We really don't have a lot of C3 costs or all-in costs. The transition from C1 costs to all-in sustaining costs, again, depending on the quarter, it's about $0.10 a pound. So we don't have the underground developments or open-pit cutbacks or anything like that. We simply don't have sustaining capital like a traditional operation would. We're not a traditional miner. So you can sort of see that getting down into the $0.75 a pound range and adding $0.10 to that to get to an $0.85 all-in but doing that off, say, 13,000 metal tonnes, which is nearly 40,000 metal tonnes per quarter, you're looking at -- sort of doing the calculations in my head, you're around 80 million pounds of payable metal inside a quarter. So you're increasing your margins, so from $0.85 to, let's say, the bid price is $1, you're generating some $0.15 margins. But you're doing it off a much bigger production base. And I think that we're looking forward to demonstrating that to the market, is that we are a significant producer of zinc and we don't need massive margins to generate significantly positive income. $0.15 margin on 80 million pounds of production is pretty decent as an overall cash inflow, talking about physical cash inflow, particularly when you've eliminated your capital cost base as well. So we do see that transition into positive cash flow occurring in the near term despite the dour zinc price environment. So any benefit from improving zinc prices and any decrease in TCs will compound that opportunity, for sure.
And just on the TCs, if I could. I just wanted to know, are you hearing anything sort of from customers or further along the chain? Is there a risk to essentially the pieces of the smelter output, Chinese smelter output, recovery from coronavirus? I note that you do say you're not seeing any impact on sales so far from coronavirus. But are you hearing anything about potential risk to our sales production?
Yes. I mean it's definitely an interesting question. The short answer is no, as it stands right now. We're seeing that smelter output increase significantly because the reality is right now, it's never been a better time to build a smelter. And now you've got this massive TC. So output is continuing to increase in China, and we are seeing that output being consumed by improving auto sectors, improving galvanized steel sectors as well. So we'll be watching those closely to assess whether their auto sales is affected or steel production or anything like that is affected because that may cause zinc stockpile -- metal stockpiles to increase if it's not being consumed. However, from a TC perspective, we fully expect the consumption of our product, of the concentrate, to improve and increase. And we're seeing that in the behavior of our customers at the moment. So we're getting multiple orders for products without consumption of the previous quarter. So behavior, for example, of -- it's behavior you would say that is not conducive to a market being fully oversupplied. They're clearly seeing a decline in global concentrate stocks. TCs are still high, so naturally, buying stuff now and taking advantage of those high TCs. So we're seeing those sort of events occur. We really don't know enough about the coronavirus. Like everyone doesn't, we really don't know enough about it to know whether it'll have a long-term effect on the overall state of China's growth rates. However, that's really what zinc is ultimately linked to or the use of the finished metal product. But I mean until we saw TCs drop right off, back towards 10-year averages, which they're a long way off, Chinese smelters are going to continue to maintain or increase their current production rates.
Great, Patrick. Well done on the quarter. I'll pass it on.
Thank you. Thanks, Matthews, too.
[Operator Instructions] There are no further questions at this time. I would now like to hand the conference back to today's presenters. Please continue.
Thanks, everyone. I'll just sum it up here. Appreciate you taking the time. So just to reiterate, we -- the business is looking forward to executing the final phase of this ramp-up. We do very much see the light at the end of the tunnel. And we also see the inflection into positive cash flow being quite strong. Specifically as we go into that June quarter, the capital spend drops off, production rates increase, margins improve, and we're able to take advantage of all those things. So we appreciate the support all investors have shown us to date, and we look forward to rewarding everyone going in through the rest of this calendar year and generating some good solid returns for the business going forward.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.